Loyal American Life Ins. Co., Inc. v. Mattiace

• Decision Date: 24 May 1996
• Citation: 679 So.2d 229
• Parties: LOYAL AMERICAN LIFE INSURANCE COMPANY, INC. v. Sue M. MATTIACE. 1941777.
• Court: Alabama Supreme Court

Page 229

679 So.2d 229

LOYAL AMERICAN LIFE INSURANCE COMPANY, INC. v. Sue M. MATTIACE.

1941777.

Supreme Court of Alabama.

May 24, 1996.

A. Stewart O'Bannon, Jr. of O'Bannon & O'Bannon, Florence, Davis Carr and James W. Lampkin II of Pierce, Carr, Alford, Ledyard & Latta, P.C., Mobile, for Appellant.

Stephen D. Heninger of Heninger, Burge & Vargo, Birmingham, for Appellee.

PER CURIAM.

The defendant, Loyal American Life Insurance Company, Inc., appeals from a judgment entered on a jury verdict in favor of the plaintiff, Sue M. Mattiace. The jury found that Loyal American had breached a life insurance contract and had acted in bad faith by failing to pay the insurance claim submitted by Sue Mattiace. We affirm.

I. Facts

In February 1990, Joseph F. Mattiace, who was then age 32, met with one of Loyal American's agents and applied for a life insurance policy with a face value of $32,200. As a part of the process, the agent asked Joseph a set of questions listed on the application form and recorded his answers. One of the questions asked was: "To the best of your knowledge and belief, has ... any person on whom insurance is applied for in this application: ... [w]ithin the past 5 years been arrested or convicted for the use of, or driving under the influence of alcohol or drugs? (if yes, give driver's license number and details.)" Joseph's answer to that question was recorded by the agent as "no."

Loyal American's agent, at that meeting with Joseph, reviewed Joseph's application and approved the policy as "standard," meaning that Joseph would pay the standard rate of premiums. The policy was issued with a $32,200 face value, and Joseph's mother, Sue Mattiace, was the beneficiary. The first yearly premium was paid to Loyal American by a loan from Joseph's credit union.

On March 2, 1990, Joseph was killed in an automobile accident. Blood and urine tests indicated that Joseph was legally intoxicated at the time of his death. Loyal American was notified of Joseph's death on March 12. Thereafter, it issued a check to Joseph's credit union for the amount of the unearned premium on the policy.

Sue Mattiace made a claim on Joseph's life insurance policy in August 1990. Loyal American responded by stating that because Joseph had died within two years of the policy's issue date, it would conduct an investigation to determine the truthfulness of his answers on the application form. As a part of the investigation, Loyal American obtained a "motor vehicle report" on Joseph, which revealed that he had been convicted of DUI on June 14, 1989, approximately eight months before he applied for the life insurance policy. Loyal American informed Sue Mattiace that it was rescinding Joseph's life insurance policy, based on his DUI conviction. It also informed her that it was denying her claim for policy benefits.

In response, Sue Mattiace's attorney contacted Loyal American's vice president of claims, George Lyles, and sought an explanation of Loyal American's underwriting practices that would justify the denial of her claim. On January 22, 1991, Lyles wrote a letter to Sue Mattiace's attorney, stating:

"Pursuant to our telephone conversation yesterday, I am enclosing a page from our underwriting manual which shows that we would have charged an extra premium of $3.00 per $1,000.00 of insurance for the first three years of the contract had we known about his previous driving record. Since we would not have issued the policy at the premium rate as applied for, it was proper that the policy be rescinded [based on Ala.Code 1975, § 27-14-7]."

(Emphasis added.) However, it is uncontested that the page enclosed with the "Lyles letter" was not a page from a Loyal American underwriting manual. Loyal American does not have its own underwriting manual. Instead, it utilizes numerous underwriting manuals prepared by various reinsurance companies and relies upon "subjective underwriting" based on its underwriters' background and knowledge.

The page enclosed with the "Lyles letter" was actually a page from the underwriting manual of a reinsurance company, one referred to in the record simply as "Cologne." However, the "Cologne" page did not support Loyal American's position that it would have charged Joseph a higher premium. The "Cologne" page actually indicated that for a person age 26 or over, such as Joseph, a DUI conviction within a year of the policy application would not have caused a rate increase but, rather, would have caused the policy to be issued at the standard rate.

In May 1991, Sue Mattiace sued Loyal American, alleging breach of contract and the tort of bad faith. The complaint was later amended to add a third count alleging fraud, misrepresentation, and deceit. Loyal American moved for a summary judgment, which the trial court denied. Before trial, each party filed a motion in limine to exclude certain evidence. The trial court denied Loyal American's motion in limine, but granted Sue Mattiace's motion in limine.

The case went to trial in May 1995. After resting her case, Sue Mattiace voluntarily dismissed the fraud, misrepresentation, and deceit claims. Loyal American moved for a directed verdict, which the court denied. The jury returned a verdict in favor of Sue Mattiace, awarding her $32,200 on her breach of contract claim, plus $25,000 compensatory damages for emotional distress and $75,000 punitive damages on her bad faith claim. Loyal American then moved for a judgment notwithstanding the verdict or, in the alternative, a new trial or a remittitur. The trial court denied that motion. Loyal American appealed.

II. Issues

Although Loyal American appears to argue several issues on appeal, the issues may be summarized as follows: (1) whether the trial court erred in ruling on either party's motion in limine, (2) whether the trial court erred in denying Loyal American's motions for a directed verdict and a J.N.O.V. on the breach of contract and bad faith claims, and (3) whether recognition of the bad faith cause of action violates Loyal American's right to a trial by jury under the Alabama Constitution of 1901 or its right to equal protection of the laws guaranteed by the Alabama and United States Constitutions.

III. Motions in Limine

A. The "Cologne" Page

Loyal American argues that the trial court erred by denying its motion in limine to exclude the "Cologne" underwriting manual page from evidence. As noted previously, the "Cologne" page was mailed by Loyal American to Sue Mattiace's lawyer as an attachment to the "Lyles letter" explaining why it had rescinded Joseph's life insurance policy. Citing Nationwide Mut. Ins. Co. v. Clay, 525 So.2d 1339 (Ala.1987), cert. denied, 488 U.S. 1040, 109 S.Ct. 863, 102 L.Ed.2d 988 (1989), and other cases, Loyal American notes that under Alabama law, the issue whether an insurance company acted in bad faith in handling a claim must be judged solely by the information that was before the insurer when it denied the claim and that any information obtained after the denial is not relevant to the bad faith claim.

Loyal American contends that the "Cologne" page was not before it when it decided to rescind Joseph's policy. It says that its underwriting department uses a "Hudson" reinsurance manual to determine the effect of DUI convictions on life insurance applications and that its attachment of the "Cologne" page to the "Lyles letter" was simply a harmless mistake. Loyal American argues that the "Cologne" page should not have been admitted into evidence because, it says, the page was irrelevant and immaterial because, it says, (1) it did not rely on that page in denying the claim, (2) that page was not applicable, and (3) that page did not become an issue until after the claim had been denied.

In response, Sue Mattiace argues that the trial court did not err in admitting the "Cologne" page into evidence because, she says, (1) the "Lyles letter" to which it was attached indicates that it was used by Loyal American during the process of denying her claim, and (2) it was extremely relevant to demonstrate that "underwriting at Loyal American [becomes] firm and restrictive only after a claim [is] filed."

"A trial court has great discretion in determining the admissibility of evidence, and its rulings will not be reversed on appeal absent an abuse of discretion." Grayson v. Dungan, 628 So.2d 445, 447 (Ala.1993). We find no abuse of discretion in the trial court's denial of Loyal American's motion in limine to exclude the "Cologne" page from evidence. Although Loyal American argues that the "Cologne" page was not before it when it decided to rescind Joseph's policy and deny the claim, the letter written by its own vice president of claims indicates the exact opposite, that the page was the basis for denying the claim. Accordingly, we believe that the "Cologne" page was highly relevant to the issues raised by Sue Mattiace's breach of contract and bad faith claims, and we conclude that it was a question of fact for the jury to determine whether the page was sent mistakenly, as Loyal American now contends.

B. Evidence of Intoxication at the Time of Death

Loyal American also argues that the trial court erred by granting Sue Mattiace's motion in limine to exclude the evidence it wished to admit to show that Joseph was legally intoxicated at the time of his fatal automobile accident. It contends that Joseph's intoxication was relevant to show the materiality of his misrepresentation on the life insurance policy application--that he had not had a DUI conviction within the preceding five years. Loyal American states that if Joseph had answered the question truthfully, then, unless there were extenuating circumstances, the use of its "Hudson" underwriting manual would have caused it to not issue the insurance policy to him at the standard rate but to make him a counteroffer of the same coverage at a higher rate or of less coverage at the same rate.

In response, Sue Mattiace argues that the...